Companies warned over the risk of foreign exchange swings as volatility set to continue throughout 2016

 
Billy Bambrough
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The Euro Comes Under Increasing Pressure
Changing interest rate policies, quantitative easing removals, and the potential for depegging of some currencies have a contributed to foreign exchange volatility (Source: Getty)

International companies are being warned that swings in the value of the pound mean risk is building in the foreign exchange market as levels of uncertainty in 2016 are anticipated to be similar to last year.

The pound has dropped considerably against both the dollar and the euro so far this year as worries around a potential British exit from the European Union mount.

Changing interest rate policies, quantitative easing, and the potential for depegging of some currencies have all contributed to foreign exchange volatility.

A survey of global corporations by accountancy giant Deloitte found 56 per cent of respondents reported that being able to forecast and quantify exposure to risk is the biggest challenge in managing foreign exchange.

Emerging market and restricted currency market volatility was the second biggest worry, highlighted by 49 per cent of of those surveyed.

“A period of relative calm in the FX markets has turned unsettled, this is likely to have an even greater impact. The current volatility of Sterling highlights this.” said Karlien Porre, partner at Deloitte.

Smaller businesses could be the worst hit by swings in the currency markets. A separate survey from foreign exchange firm World First showed 75 per cent of small and medium sized businesses fear currency volatility related to the EU referendum would impact their business.

A strong pound can mean that international firms make less from earnings overseas.

In February Primark parent company Associated British Foods has said its numbers were set to come in better than expected after currency woes have partially lifted.

Volatility is generally unwelcome however, with Dixons Carphone warning earlier in the year on currency weaknesses.

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